Thirty Percent of Eligible Employees Take GM Lump-Sum Offer

GM announced on June 1 it would offer 42,000 salaried retirees a lump-sum offer. Another 76,000 salaried retirees, along with those who declined the lump sum, will receive annuity payments from Prudential.

"It was pretty much in line (with company expectations), maybe a little better," GM spokesman James Cain said in a telephone interview.

In addition, GM in an 8-K filing said it expects to close its annuity contract with Prudential Insurance Co. of America in early November. GM will eliminate about $29 billion in pension liability through lump sums and annuitizations. The company originally estimated transferring $26 billion, but the number increased as discount rates fell, Cain said. Lump-sum payments will account for about $3.9 billion.

GM announced on June 1 it would offer 42,000 salaried retirees a lump-sum offer. Another 76,000 salaried retirees, along with those who declined the lump sum, will receive annuity payments from Prudential.

In all, GM will transfer $30.8 billion in assets and $28.7 billion in obligations, according to the 8-K filing.

Matt Herrmann, leader of Towers Watson's retirement risk management group, said there was no clear industry expectation for the acceptance rate because the lump-sum offers by GM—and also Ford Motor Co.—were "groundbreaking." In the years before the financial crisis, the acceptance rate was 80 percent to 90 percent for active employees who received a lump sum upon leaving the company, Herrmann said. He added that terminated vested employees receiving the offer at a later time would typically have a lower rate and retirees would be lower than that.

Across the board, the acceptance rate for lump sums has declined as the market environment has shifted from capital market stability to uncertain and volatile times, Herrmann said.

GM will make a total cash contribution of $2.6 billion to the $33.3 billion U.S. salaried defined benefit plan, down from an original estimate of $3.5 billion to $4.5 billion. Cain said the decreased contribution was due to a decision to not provide additional funding for the plan's participants who are not part of the lump-sum offer and annuity contract.

The pension plan will have $6.1 billion in assets and $9.2 billion in liabilities after the Prudential transaction is complete, for a funded status of 66.3 percent.